S.L. 330.9 Art. 44Scope of bail-in tool.

(1) The bail-in tool may be applied to all liabilities of an institution or entity referred to in paragraphs (b), (c) or (d) of the definition "entity" in regulation 2(1) that are not excluded from the scope of that tool pursuant to sub-regulations (2) or (3):

Provided that contributions from senior debt holders, in particular from insured deposits, uninsured deposits, bonds and all other senior debt, will not be mandatory whether by conversion into capital or by write-down of instruments before 1st January 2016.

(2) The Resolution Committee shall not exercise the write-down or conversion powers in relation to the following liabilities whether they are governed by the law of Malta, of another Member State or of a third country:

(a) covered deposits: Provided that this paragraph shall not prevent the Resolution Committee, where appropriate, from exercising those powers in relation to any amount of a deposit that exceeds the coverage level provided for in Article 6 of Directive 2014/49/EU;

(b) secured liabilities including covered bonds and liabilities in the form of financial instruments used for hedging purposes which form an integral part of the cover pool and which according to Maltese law are secured in a way similar to covered bonds;

(c) any liability that arises by virtue of the holding by the institution or entity referred to in paragraphs (b), (c) or

(d) of the definition "entity" in regulation 2(1) of client assets or client money including client assets or client money held on behalf of UCITS as defined in Article 1(2) of Directive 2009/65/EC or of AIF’s as defined in point (a) of article 4(1) of Directive 2011/ 61/EC, provided that such a client is protected under the applicable insolvency law;

(d) any liability that arises by virtue of a fiduciary relationship between the institution or entity referred to in paragraphs (b), (c) or (d) of the definition "entity" in regulation 2(1) (as fiduciary) and another person (as beneficiary) provided that such a beneficiary is protected under the applicable insolvency or civil law;

(e) liabilities to institutions, excluding entities that are part of the same group, with an original maturity of less than seven days;

(f) liabilities with a remaining maturity of less than seven days, owed to systems or operators of systems designated in accordance with Directive 98/26/EC or to their participants and arising from the participation in such a system, or to central counterparties authorised in another Member State pursuant to Article 14 of Regulation (EU) No 648/2012 and third-country central counterparties recognised by ESMA pursuant to Article 25 of the said Regulation;

(g) a liability to any one of the following:

(i) an employee, in relation to accrued salary, pension benefits or other fixed remuneration, except for the variable component of remuneration that is not regulated by a collective bargaining agreement: Provided that this sub-paragraph shall not apply to the variable component of the remuneration of material risk takers as identified in Article 92(2) of the CRD;

(ii) a commercial or trade creditor arising from the provision to the institution or entity referred to in paragraphs (b), (c) or (d) of the definition "entity" in regulation 2(1) of goods or services that are critical to the daily functioning of its operations, including IT services, utilities and the rental, servicing and upkeep of premises;

(iii) tax and social security authorities, provided that those liabilities are preferred under the applicable law;

(iv) deposit guarantee schemes arising from contributions due in accordance with Directive 2014/49/EU:

(h) liabilities to institutions or entities referred to in paragraphs (b), (c) or (d) of the definition "entity" in regulation 2(1) that are part of the same resolution group without being themselves resolution entities, regardless of their maturities, except where those liabilities rank below ordinary unsecured liabilities under regulation 108:

Provided that, in cases where the exception applies the Resolution Committee is the resolution authority responsible for the relevant subsidiary that is not a resolution entity, shall assess whether the amount of items complying with regulation 45F(2) is sufficient to support the implementation of the preferred resolution strategy. Provided that all secured assets relating to a covered bond cover pool shall remain unaffected, segregated and with enough funding. Neither that requirement, nor paragraph (b) shall prevent the Resolution Committee, where appropriate, from exercising those powers in relation to any part of a secured liability or a liability for which collateral has been pledged that exceeds the value of the assets, pledge, lien or collateral against which it is secured: Provided further that without prejudice to the large exposure rules in the CRR and the CRD, in order to provide for the resolvability of institutions and groups, the Resolution Committee shall limit, in accordance with regulation 17(5)(b), the extent to which other institutions hold bail-inable liabilities save for liabilities that are held at entities that are part of the same group.

(3) In exceptional circumstances, where the bail-in tool is applied, the Resolution Committee may exclude or partially exclude certain liabilities from the application of the write-down or conversion powers where:

(a) it is not possible to bail-in that liability within a reasonable time notwithstanding the good faith efforts of the Resolution Committee;

(b) the exclusion is strictly necessary and is proportionate to achieve the continuity of critical functions and core business lines in a manner that maintains the ability of the institution under resolution to continue key operations, services and transactions;

(c) the exclusion is strictly necessary and proportionate to avoid giving rise to widespread contagion, in particular as regards eligible deposits held by natural persons and micro, small and medium sized enterprises, which would severely disrupt the functioning of financial markets, including of financial market infrastructures, in a manner that could cause a serious disturbance to the economy of Malta, of another Member State or of the European Union; or

(d) the application of the bail-in tool to those liabilities would cause a destruction in value such that the losses borne by other creditors would be higher than if those liabilities were excluded from bail-in: Provided that, the Resolution Committee shall carefully assess whether liabilities to institutions or entities referred to in paragraphs (b), (c) or (d) of the definition "entity" in regulation 2(1), that are part of the same resolution group without being themselves resolution entities and that are not excluded from the applicable write down and conversion powers under paragraph (h) of sub-regulation (2), should be excluded or partially excluded under paragraphs (a) to

(d) to ensure effective implementation of the resolution strategy:

Provided further that, where the Resolution Committee decides to exclude or partially exclude a bail-inable liability or class of bail-inable liabilities under this sub-regulation, the level of write down or conversion applied to other bail-inable liabilities may be increased to take account of such exclusions, provided that the level of write down and conversion applied to other bail-inable liabilities complies with the principle in regulation 34(1)(g).

(4) Where the Resolution Committee decides to exclude or partially exclude a bail-inable liability or class of bail-inable liabilities pursuant to this regulation, and the losses that would have been borne by those liabilities have not been passed on fully to other creditors, the resolution financing arrangement may make a contribution to the institution under resolution to do one or both of the following:

(a) cover any losses which have not been absorbed by bail-inable liabilities and restore the net asset value of the institution under resolution to zero in accordance with regulation 46(1)(a);

(b) purchase shares or other instruments of ownership or capital instruments in the institution under resolution, in order to recapitalise the institution in accordance with regulation 46(1)(b).

(5) The resolution financing arrangement may make a contribution referred to in sub-regulation (4) only where:

(a) a contribution to loss absorption and recapitalisation equal to an amount not less than 8% of the total liabilities including own funds of the institution under resolution, measured at the time of resolution action in accordance with the valuation provided for in regulation 36, has been made by the shareholders and the holders of other instruments of ownership, the holders of relevant capital instruments and other bail-inable liabilities through write down, conversion or otherwise; and

(b) the contribution of the resolution financing arrangement does not exceed 5% of the total liabilities including own funds of the institution under resolution, measured at the time of resolution action in accordance with the valuation provided for in regulation 36.

(6) The contribution of the resolution financing arrangement referred to in sub-regulation (4) may be financed by:

(a) the amount available to the resolution financing arrangement which has been raised through contributions by institutions and Union branches in accordance with regulation 100(6) and regulation 103;

(b) the amount that can be raised through ex-post contributions in accordance with regulation 104 within three years; and

(c) where the amounts referred to in paragraphs (a) and

(b) are insufficient, amounts raised from alternative financing sources in accordance with regulation 105.

(7) In extraordinary circumstances, the Resolution Committee may seek further funding from alternative financing sources after:

(a) the 5% limit specified in sub-regulation (5)(b) has been reached; and

(b) all unsecured, non-preferred liabilities, other than eligible deposits, have been written down or converted in full: Provided that, where the conditions laid down in this sub-regulation are met, the resolution financing arrangement may make a contribution from resources which have been raised through ex-ante contributions in accordance with regulation 100(6) and regulation 103 and which have not yet been used.

(8) By way of derogation from sub-regulation (5)(a), the resolution financing arrangement may also make a contribution as referred to in sub-regulation (4) provided that:

(a) the contribution to loss absorption and recapitalisation referred to in sub-regulation (5)(a) is equal to an amount not less than 20% of the risk weighted assets of the institution concerned;

(b) the resolution financing arrangement has at its disposal, by way of ex-ante contributions (not including contributions to a deposit guarantee scheme) raised in accordance with regulation 100(6) and regulation 103, an amount which is at least equal to 3% of covered deposits of all the credit institutions authorised in Malta; and

(c) the institution concerned has assets below EUR 900 billion on a consolidated basis.

(9) When exercising the discretions under sub-regulation (3), the Resolution Committee shall give due consideration to:

(a) the principle that losses should be borne first by shareholders and next, in general, by creditors of the institution under resolution in order of preference;

(b) the level of loss absorbing capacity that would remain in the institution under resolution if the liability or class of liabilities were excluded; and

(c) the need to maintain adequate resources for resolution financing.

(10) Exclusions under sub-regulation (3) may be applied either to completely exclude a liability from write down or to limit the extent of the write down applied to that liability.

(11) Before exercising the discretion to exclude a liability under sub-regulation (3) the Resolution Committee shall notify the European Commission and shall give due consideration to any recommendation that it may receive from the European Commission following such notification.